Tech Secrets Behind Revenue Management Success

By Dorothy Creamer, Managing Editor
| February 13, 2013

Money makes the world go round and it’s certainly true in hospitality. Revenue management is a premiere concern for today’s hotel operators and while it’s a number-crunching science, in many ways it’s far from being exact. The hotel revenue manager is often cast in the role of soothsayer, responsible for reading “tea leaves” of data in order to discern a formula for ultimate profitability. These reluctant clairvoyants seek out the aid of technology providers for systems that can lessen the burden and mine for important nuggets of information that will help capture and capitalize on revenue.

“Revenue managers love data,” says Todd Hotaling, corporate director of revenue & marketing, Lodging Hospitality Management (www.lhmc.com). “We love to see if there is a trend and attack that, and to make better decisions.” Hotaling oversees a team of revenue managers across 16 hotels including brands such as Hilton, Starwood and Marriott, plus boutique brands such as The Cheshire (www.cheshirestl.com) and the Seven Gables Inn (www.sevengablesinn.com).

The sort of data that Hotaling craves mostly stems from understanding customers and booking habits in order to decide on action steps. “Having real-time data has improved our performance exponentially,” Hotaling admits. “The biggest thing is monitoring and having information about who is booking, what channel they are booking on, what specific rate program or rate they’re booking and for what length of stay.” For this information, both The Cheshire and the Seven Gables Inn utilize Maestro PMS (www.maestro.com). Managers are then able to restrict segments accordingly to increase profit margin and conversely pull back on restrictions or length of stays that are not yielding results.

The need for a revenue management system that runs comprehensive reports was exactly what led Trump Hotels (www.trumphotels.com) to seek out a new provider. Finding its legacy system’s reporting capabilities lacking, the hotel management sought a solution that would have the ability to extract data that they were seeking, ultimately turning to EasyRMS (www.easyrms.com). “EasyRMS has a significant business intelligence (BI) tool that creates reports with recommendations on selling strategies and hurdle points,” explains Nathan Crisp, corporate director, revenue management.

One feature Crisp values is the ability to keep track of where guests are booking and monitor the entire cycle. “From a revenue management standpoint, the fundamentals are still there,” Crisp notes. “The ultimate goal is to make sure we have great parity across the board, that guests find the best rates through our direct channels, and that we’re competitive within the market. That’s the name of the game.”

The theory of the sell-out
Most revenue managers will admit that the ultimate objective is to sell out, and to sell out every room at the highest rate possible. Darrell Jones, director of shared services, Globiwest (www.globiwest.com), understands this drive for RevPar, since Globiwest owns and operates collectively 30 properties mainly in the western and eastern states. “If every hotel slashed their rates to 50 bucks they’d probably sell out,” he jokes. “The trick — and the science — is how do you get sold out at the highest rate?”

Jones has turned to Rate Tiger (www.ratetiger.com) to automate the process of pushing out rate changes across OTAs and GDS. Property management systems and customer relationship managers play a vital role in hotel management, but Jones believes that for high-pace hotels, a channel manager is the only option. “It’s optional, but it’s crucial,” he says. “Time is money and money is time. I can’t be pushing buttons all day instead of making decisions. If I’m bogging myself down pushing buttons, I’m not making the rate decisions and making money.”

Among its other functionalities, Rate Tiger alerts hotels when competitors are doing aggressive rate changes. It also sends updates to alert of inventory issues or if hotels are out of inventory at a certain OTA and will ask if the manager wants to add more. “The channel manager will look at the forecast and these things on a daily basis and decide what needs to be done based on the pace; it’s all about pace controls,” Jones attests.

Staying ahead of the game is key for the Saunders Hotel Group’s revenue strategy (www.saundershotelgroup.net). Utilizing IDEAS (www.ideas.com) revenue solutions, Colin O’Donnell, director of revenue management appreciates being able to make decisions on data in real-time for independent properties such as Boston-based The Lenox (www.lenoxhotel.com). “We went from looking 90 days out and making rate changes that took a day, to now we’re doing it every hour,” he says. “It has made us more proactive and changed our ability to catch problems in time to make a change.”

Saunders Hotel Group had recently made a PMS change to track its own house better. “We wanted to make sure we were capturing our guests by their market behavior — corporate versus leisure and those who book online versus direct,” O’Donnell explains. “That segmentation drives our revenue management system as far as being able to pick segments and yield them out appropriately and make decisions appropriately.”

Human analysis still imperative
A dichotomy exists within revenue management solutions as managers seek systems that will do it all, yet realize the importance of having human input. Heiko Dobrikow, Riverside Hotel (www.riversidehotel.com) reveals that he initially passed on rolling out RevParGuru (www.revparguru.com) in his hotel for fear that he would lose control of the rate decision making process. After originally rejecting the solution, Dobrikow was pleased by system tweaks that included the addition of two platforms — one for retail rates and the other for hidden rates with bundled packages such as air, car, and hotel. “We have the ability to play with the rates and RevParGuru allows us to manually update those,” Dobrikow enthuses. “It’s another option to have certain controls.” Dobrikow explains that operators can move the automated threshold if the system is too aggressive to offer lower rates or vice versa. This is particularly helpful in case of one-time events that the system is not aware of and therefore is not analyzing correctly.

“No matter how smart the tool is it can’t do all the thinking for you,” Jones agrees. “You have to have a human looking at the convention calendar considering everything because every year is different from the last. There are always curve balls and a different set of experiences month to month.”
Crisp attests that revenue management is 90% facts and figures and 10% gut. “There is always the need for the human mind,” he says. “There will never be a system out there that will replace that instinct. If your gut tells you a prediction is wrong, listen to it.”

Balancing act between man and machine
Ultimately, managers agree that systems are only as good as the information you tell it. “A lot of the work is making the system understand the aberrations, so it doesn’t understand that as normal,” O’Donnell reminds. “We don’t like to tinker with the day-by-day because we should be setting the parameters and understand what the system wants to do. Then don’t over manage it, because then you are losing the value of the system and the algorithms they set up.”
Deeper analysis of events poses many decisions for revenue managers. Dobrikow uses the example of the presidential inauguration. During this time a revenue manager might automatically think that would be a five-night minimum at $500 a night for people attending the event. A revenue management system will offer a different option because some people won’t be willing to pay that and will recommend offering a rate of $750 for the 1-, 2-, or 3-nighters. “The system is looking at the buying habits that at certain time frames are occurring and realizing what consumers are willing to pay,” Dobrikow explains. “This maximizes occupancy and average rate, plus you’re getting much better rate exposure and profitability to have much stronger revenue strategy than before.”
Hotaling agrees that being able to make restrictions and yields by room class is a great aspect. If deluxe double queens were selling heavily, a hotel might potentially restrict that because that’s where the demand is, but not restrict other room types. “Often, revenue managers might see demand out there, think it might be on everything, and make a hard restriction, however they might be over-reacting,” Hotaling cautions.

“The algorithms are the secret sauce for any RMS,” Crisp states. “The formula takes into account historical data, current pace, holidays, events ­— everything that is going to impact revenue as either low impact, high impact, negatively or positively. There are some things we can put in to influence what the RMS puts out, but for the most part, that’s what makes the system worth the cost.”

What’s on Revenue Managers’ Wish Lists

While great strides have been made with revenue tools, managers admit there is always room for improvement. For Nathan Crisp, corporate director of revenue management for Trump Hotels, next-generation revenue management systems should take functionalities outside of the silo. He bemoans the fact that many systems only look at a singular hotel and its performance without taking into account what is going on in the market. “I would like to see these systems take into account Star Report data, current pricing strategies at other hotels, and there is a new report Demand360 from Travel Click (www.travelclick.com) that looks at booking trends for hotels based on what’s on the books,” Crisp muses. “I’d like a system to roll that into aggregate data and take it into account when making suggestions.”

Heiko Dobrikow with Riverside Hotel believes that the wish of any operator who has multi-revenue operations would be a one-stop shop system that embraces revenue management for not only rooms, but uses a similar or the same platform for the way cover counts are captured in a restaurant. The system could further be integrated for maximizing bar sales, maximizing space and selling of dockage at marinas, pricing optimization for golf course rounds, maximizing revenue for treatments at the spa, insuring the most is charged on tennis courts, etc. “It would be a beautiful thing if there was a solution that grabs all data for a multi-faceted organization and manages it that way providing the utmost intelligence,” Dobrikow describes.